2009 November 12
(NEW YORK) In an industry where so much seems tenuous, e-commerce in the luxury fashion world has gained tremendous momentum. New York University marketing professor and Red Envelope founder Scott Galloway recognizes this reality, and along with other members of the NYU think tank LuxuryLab, has ranked 109 luxury companies according to their "Digital IQ Index." Within the ranking system, companies can fall anywhere from "Genius," to "Average," or the unfortunate "Feeble" category. Taking the title as most digitally competent is Apple, followed by BMW. However, fashion labels Louis Vuitton and Ralph Lauren are in the top 8 overall. So what does this all really mean, and what can we expect to see in the future? Last week, LuxuryLab held an Innovation Forum to address issues affecting the luxury marketplace, and we caught up with Galloway who weighed in and demystified the numbers.
Why was luxury world initially so reluctant to go digital?
Necessity is the mother of innovation, and the luxury sector's staggering growth up until September of last year led to a general lack of urgency and skepticism around a new medium that posed risks. Understandable. Why take these risks when what you are doing is working so well?
How will smaller to mid-size brands have an advantage over the larger labels when it comes to new media? Which brands, specifically, are examples of this?
You could call the 1990s the decade of the "flagship" store. Brands built temples on Fifth Avenue, Rodeo Drive, et cetera and consumers responded and embraced the channel. No matter how creative or innovative, a brand simply needs millions in capital to build these stores. On the web, it's now become less capital intensive and more innovation intensive. So a brand like Tory Burch that has embraced social media and has a great site can begin to get traction faster as the barriers to competing with her bigger competitors have come down. However, to be clear, great brands with a lot of resources and a willingness to embrace risk and the Internet is the ultimate cocktail (e.g., LVMH and Ralph Lauren).
How much influence do social networking tools like Twitter and Facebook really have?
A lot.Gen Y is starting to use Facebook and Twitter as their starting page for the Internet. So having a broad, well-managed presence on these platforms is better than renting an audience in magazines or television, as you own them--they are your evangelists and want more info. The top referral (upstream sites) for most luxury brands is search (Google, Yahoo!), however social media sites are now in the top 10 of referral for over 50% of luxury brands. It's likely that in say three years the most heavily-trafficked sites will be the sites with the greatest following on social media sites.
Can you explain the success of companies like Gilt Groupe?
Whenever companies try to avoid or refuse consumer needs, other companies fill the void. Luxury brands were left with huge inventories due to the recession, but did not have the technology or the will to create flash sales competencies in house. Gilt, Hautelook and RueLaLa have seized the opportunity and are now worth more than 80% of the companies whose brands they carry.
In terms of the importance of e-commerce in the luxury world, where do you see this heading in the future?
Up, up, and away. Within five years I believe the category leaders will be doing 20-30% of their sales online and it will be their most profitable channel. We've reached a tipping point. Consumers want the access, and luxury brands have, finally, embraced the medium and are innovating.
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